Ksl & Industries Ltd. Vs M/s. Arihant Threads Ltd. .

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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 5225 OF 2008

KSL & INDUSTRIES LTD. …. APPELLANT

VERSUS

M/S ARIHANT THREADS LTD. & ORS. …. RESPONDENTS

JUDGMENT

S. A. BOBDE, J.

1. This appeal is placed before us by way of a

reference, made by a two-Judge Bench of this Court, C.K.

Thakker and Altamas Kabir, JJ. which heard the matter on

an earlier occasion and held that the appeal deserves to be

allowed and that the Judgment and Order passed by the

High Court is liable to be set aside. In view of a difference

of opinion having arisen on the interpretation of Section 34

of the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993 (hereinafter referred to as the

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`RDDB' Act) the matter has been referred for decision to

this Bench by the Hon’ble Chief Justice of India.

2. The present appeal is preferred by KSL & Industries

Ltd. (`appellant' for short) against the final Judgment and

Order dated 23.02.06 passed by the Delhi High Court in

Writ Petition Nos. 2041-2042 OF 2006. The High Court set

aside the Order passed by the Debt Recovery Appellate

Tribunal, Delhi (`DRAT' for short) and held that in view of

the bar contained in Section 22 of the Sick Industrial

Companies (Special Provisions) Act, 1985 (hereafter

referred to as `SICA') no recovery proceedings could be

effected against Respondent No. 1 (M/s. Arihant Threads

Ltd.) (‘Company' for short).

3. The Company set up an export oriented spinning unit

for manufacturing cotton yarn in Amritsar District, in the

State of Punjab. The Company took on lease, Plot No. 454

in 1992 for a period of 99 years from Goindwal Sahib

Industrial & Investment Corporation, on a condition that it

would not transfer the interest in the property for the first

fifteen years without prior permission of the lessor. The

Company had a right to mortgage lease-hold rights to a

Bank, the Punjab Financial Corporation or the Life

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Insurance Corporation of India as security for a loan. It

got its project financed by the Industrial Development

Bank of India (`IDBI' for short) by way of foreign currency

loan and a working capital of Rs. 93.1 million.

4. Since the Company failed to repay loan installments,

IDBI filed Original Application No. 1368 of 2001 on

December 20.12.01 in Debt Recovery Tribunal, Chandigarh

(`DRT' for short) for recovery of Rs. 25,26,60,836/- under

the RDDB Act. In the proceedings before the DRT the

Company remained absent, although, duly served. On

15.07.03, an ex-parte final order in favour of IDBI for

recovery of above mentioned sum i.e. Rs. 25,26,60,836/-

along with interest @ 7.8% p.a. was passed by DRT. DRT

expressly directed that in the event of failure on the part of

the Company to pay the decretal amount, IDBI will be

entitled to sell the mortgaged property of the company and

recover the amount. If the amount remained unrecovered

even then, it shall be recovered from the sale of personal

properties of the defendants therein.

5. On 09.09.03, the Recovery Officer issued a

composite demand notice under Rule 2 of Second Schedule

of the Income Tax Act, 1961 against the Company

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demanding payment of Rs. 28,60,87,384/-. He directed

the Company to appear for settling terms and conditions of

the proclamation of sale and for disclosure of its movable

and immovable assets.

6. On 16.09.04, the Recovery Officer fixed the reserve

price of the movable and immovable properties at

Rs. 12.50 crores. On 18.10.04, the Company filed an

appeal under Section 30 of the RDDB Act against the order

dated 16.09.04 fixing reserve price of the movable and

immovable properties at Rs. 12.50 crores. On 30.10.04,

the appellant was declared the highest bidder at Rs. 12.52

crores and was thus successful. On 15.12.04, the Company

moved an application for setting aside the ex-parte final

order, passed on 15.07.03 by DRT Chandigarh in favour of

IDBI, directing recovery of Rs. 25,26,60,836/- along with

interest @ 7.8% p.a. The appellant, who had become the

auction-purchaser of the company’s properties objected to

the prayer of the Company for setting aside the ex-parte

order and applied for impleadment. Meanwhile, the

Company got its property valued by Himachal Consultancy

Organisation Ltd. The realizable value of the company’s

property had been valued at Rs. 20.22 crores.

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7. On 26.07.05, DRT-I, Delhi allowed the Company’s

appeal filed under Section 30 of the RDDB Act against

fixation of reserve price at Rs. 12.50 crores. DRT-I, Delhi,

set aside the auction sale subject to payment of a certain

amount, interest, expenses, etc.

8. Objecting to these conditions, the Company filed an

appeal to the DRAT, Delhi. The appellant also filed an

appeal being aggrieved by the setting aside of the sale in

its favour. The DRAT stayed the order dated 26.07.05 by

which the ex-parte order against the Company was set

aside and directed refund of sale amount to the appellant.

9. On 21.12.05, the Company invoked the provisions of

SICA. It filed a Reference before the Board of Industrial

Finance & Reconstruction (`BIFR' for short). On 10.02.06,

the DRAT dismissed the appeal filed by the Company and

allowed the appeal of the appellant. The DRAT confirmed

auction-sale in favour of the appellant on depositing the

sale price. The DRAT directed that steps to handover

possession of the property to the auction-purchaser

(appellant) be taken by the Recovery Officer and the

appellant shall deposit the entire amount.

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10. Before the formalities directed by the DRAT could be

completed, the Company filed two Writ Petitions before the

Delhi High Court against the order of the DRAT, Delhi. The

Delhi High Court allowed the Writ Petitions vide impugned

order dated 23.02.06 and set aside the order passed by

the DRAT, Delhi on the ground that in view of the bar of

Section 22 of the SICA, the recovery proceedings could not

be pursued against the Company and no order ought to

have been passed by the DRAT, Delhi.

11. Subsequent to the order of the High Court, the BIFR

rejected the Reference of the Company and the Company

preferred an appeal, which is pending before the Appellate

Authority for Industrial & Financial Reconstruction (AAIFR).

The second Reference has also been filed by the Company

which has been registered as BIFR Case No. 18 of 2006, in

which the Company has been declared as a `sick

Company' and respondent No. 5 [Stressed Assets

Stablization Fund, Mumbai] has been appointed as

Operating Agency to prepare Rehabilitation Scheme.

12. As stated earlier, the matter was earlier heard by a

two Judge Bench of this Court. One of the learned Judges,

Thakker, J. held that the provisions of RDDB Act should be

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given priority and primacy over SICA by virtue of Section

34 of the RDDB Act as it is a subsequent enactment.

Therefore it may be presumed even in the absence of any

specific provision, that Parliament was aware of all the

statutes enacted prior thereto; that the non-obstante

clause had been inserted to ensure expeditious

adjudication and recovery of debts due to banks and

financial institutions. Thakker, J. also held that in view of

sub-section (2) of Section 34 of the RDDB Act, which

provides that the provisions of the Act are “in addition to

and not in derogation of” inter alia SICA, which is an

additional factor why the RDDB Act shall prevail. Kabir, J.

as His Lordship then was, held that the non-obstante

clause in Section 34(1) contains an exception, to be found

in sub-section (2). Sub-section (2) provides that the Act

shall be in addition to and not in derogation of inter alia

the SICA. Further, that the overriding effect of RDDB Act

would have an overriding effect over other enactments but

supplemental to the provisions of SICA, and therefore, the

provisions of SICA would prevail over the provisions of the

RDDB Act.

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13. Kabir, J. further held that since the proceedings for

recovery had long been over, before the Company invoked

provisions of the SICA Act, the Company would therefore

not be entitled to any relief before the High Court.

14. Kabir, J. referred to the following facts for drawing

this conclusion. It was only on 21.12.05, that the Company

filed a Reference before the BIFR which was dismissed on

10.02.06. Before this, the Recovery Officer had issued a

demand notice under Rule 2 of the Second Schedule to the

Income Tax Act, 1961 demanding payment of

Rs. 28,60,87,384/-, as directed by the DRT, Chandigarh in

the final order. Thereafter, several events had taken place,

such as, on 27.10.2004, DRT allowed the auction sale

proceedings but directed it should not be confirmed; on

30.10.04, the appellant was declared to be the highest

bidder and had deposited the entire sale price on

11.11.04; in the appeal under Section 30 of the RDDB Act,

the Company moved an application for setting aside the

ex-parte order against fixation of reserve price and this

appeal was allowed on 26.07.2005 subject to fulfillment of

certain terms and conditions. It was observed that the

appeal filed by the Company was only against fixation of

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the reserve price and not against the final order. The

Company had not even availed of an appeal under Section

20 of the RDDB Act or for setting aside the sale under Rule

60 of the Second Schedule of the Income Tax Act, 1961

but only chose the path for having the auction-sale set

aside on the ground that the reserve price of the

Company’s assets had not been correctly fixed. In effect,

proceedings had been concluded in favour of the IDBI

under Section 19 of the RDDB Act long before the BIFR

came into the scene. That auction sale of the properties

under the RDDB Act was confirmed by the DRAT before the

writ petitions were allowed by the High Court.

15. The Company's first Reference was rejected by the

BIFR and only the second reference made on 15.09.06,

had been allowed i.e. after the High Court’s order dated

23.02.06. Since the recovery proceedings have been

concluded in favour of the appellant and the appellant had

also deposited the sale price, the respondent was not

entitled to any relief by virtue of Section 22 of the SICA

before the High Court.

16. In the circumstances, both the learned Judges held,

for different reasons, that the appeal deserves to be

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allowed and the Judgment and Order of the High Court is

liable to be set aside. Since, there was a difference of

opinion on the question of law, a reference was made to a

larger Bench.

SCHEME AND PURPOSE OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 [SICA]

17. The Statement of Objects and Reasons for the Sick

Industrial Companies (Special Provisions) Act, 1985, sets

out the following:

While interpreting which of the two Acts i.e. The Sick

Industrial Companies (Special Provisions) Act, 1985 [SICA]

or the Recovery of Debts due to Banks and Financial

Institutions Act, 1993 [RDDB Act] should prevail, in view of

the non obstante clause contained in both, one of the

important tests is the purpose of the two enactments. It is

important to recognize and ensure that the purpose of

both enactments is as far as possible, fulfilled.

18. The SICA was enacted to provide for timely

determination of a body of experts for providing

preventive, ameliorative, remedial and other measures

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that would need to be adopted to sick companies. The ill-

effects of sickness in industrial companies such as loss of

production, loss of employment, loss of revenue to the

Central and State Governments and locking up of

investible funds of banks and financial institutions were of

serious concern to the Government and the society at

large. In order to fully utilize the productive industrial

assets, afford maximum protection of employment and

optimize the use of funds of the banks and financial

institutions, it was found imperative to revive and

rehabilitate the potentially liable sick industrial companies.

19. Multiplicity of laws and agencies made the adoption

of a coordinated approach for dealing with sick industrial

companies difficult. The Sick Industrial Companies Bill was

introduced in the Parliament to enact legislation for timely

determination of a body of experts for providing

preventive, ameliorative, remedial and other measures.

20. As would appear significant in the scheme of things

relevant to this matter, an important reference is made to

the “multiplicity of laws and agencies” making the adoption

of a coordinated approach for dealing with sick industrial

companies difficult.

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21. The term “sick industrial company” has been defined

to mean an industrial company (being a company

registered for not less than five years) which has at the

end of any financial year accumulated losses equal to or

exceeding its entire net worth, vide Section 3(o).

“Industrial Company” means a company which owns one

or more industrial undertakings, vide Section 3(e).

“Industrial Undertaking” has been defined to mean an

undertaking pertaining to a scheduled industry carried on

in one or more factories by any company, vide Section

3(f).

22. In effect a “sick industrial company” is a company

owning one or more industrial undertakings pertaining to a

scheduled industry as contemplated by the Industries

(Development and Regulation) Act, 1951 (IDRA).

23. The Act thus aims to revive and rehabilitate, not all

sick companies but those in the schedule to the IDRA,

presumably vital to the economy of the nation.

24. The Act provides for an Inquiry into whether a

company is a sick industrial company, an assessment

whether it can be made viable and the preparation and

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sanction of a scheme for inter alia the financial

reconstruction of the sick industrial company. It provides

for the proper management of the sick industrial company,

amalgamation, sale or lease of a part or whole of an

industrial undertaking of the sick company etc., vide

Sections 16, 17 and 18 of the SICA Act.

25. The Act confers wide powers on the Board to provide

in the scheme - amalgamation of the sick industrial

company with a transferee company, the alteration of the

memorandum or articles of association, reduction of the

interest or rights of the shareholders and for continuation

of legal proceedings, the sale or lease of the industrial

undertaking etc.

26. It is in this background that Section 22, which

provides for suspension of legal proceedings, is enacted.

To the extent it is relevant here, the Section reads as

under:

“ 22. SUSPENSION OF LEGAL PROCEEDINGS, CONTRACTS, ETC.

(1) Where in respect of an industrial company,

an inquiry under Section 16 is pending, or any

scheme referred to under Section 17 is under

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preparation or consideration or a sanctioned

scheme is under implementation or where an

appeal under Section 25 relating to an

industrial company is pending, then,

notwithstanding anything contained in the

Companies Act, 1956 (1 of 1956) or any other

law or the memorandum and articles of

association of the industrial company or any

other instrument having effect under the said

Act or other law, no proceedings for the

winding-up of the industrial company or for

execution, distress or the like against any of

the properties of the industrial company or for

the appointment of a receiver in respect

thereof and no suit for the recovery of money

or for the enforcement of any security against

the industrial company or of any guarantee in

respect of any loans, or advance granted to

the industrial company shall lie or be

proceeded with further, except with the

consent of the Board or, as the case may be,

the Appellate Authority.”

27. The Section is enacted against the backdrop of the

existing multitude of remedies which creditors may avail of

against an indebted company and its properties bringing

them to attachments, auction sale etc., making it difficult

for the authorities entrusted with its reconstruction under

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the SICA to evolve a scheme for reconstruction. The

Section is also given primacy by way of a non-obstante

clause vide Section 32 of SICA which reads as follows:-

“32. Effect of the Act on other laws

(1) The provisions of this Act and of any rules

or schemes made there under shall have effect

notwithstanding anything inconsistent

therewith contained in any other law except

the provisions of the Foreign Exchange

Regulation Act, 1973 (46 of 1973) and the

Urban land (Ceiling and Regulation) Act, 1976

(33 of 1976) for the time being in force or in

the Memorandum or Articles of Association of

an industrial company or in any other

instrument having effect by virtue of any law

other than this Act.

(2) Where there has been under any scheme

under this Act an amalgamation of a sick

industrial company with another company, the

provisions of Section 72A of the Income-tax

Act, 1961 (43 of 1961) shall, subject to the

modifications that the power of the Central

Government under that section may be

exercised by the Board without any

recommendation by the specified authority

referred to in that section, apply in relation to

such amalgamation as they apply in relation to

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the amalgamation of a company owning an

industrial undertaking with another company.”

28. It may also be noted that the Section, along with the

SICA was enacted in 1985. At that time the remedies

which were later on provided by the RDDB Act 1993, for

recovery by a creditor through an application to the Debt

Recovery Tribunal were not in existence nor contemplated.

There is naturally no reference to such a mode of recovery

in the SICA and neither is a stay contemplated of such a

proceedings in express terms. We say this in view of the

submission advanced before us that Section 22 only

contemplates a stay of proceedings for the distress or

execution of the properties of the sick company and suits

for recovery and that therefore an application for recovery

under the RDDB Act cannot be stayed, and must proceed.

We might also observe that the consequence of accepting

the submission that Section 22 cannot affect or render

untenable an application for recovery under the RDDB Act,

would result in an anomaly. The submission is that Section

22 lays down that only proceeding for winding up or

execution, distress or the like shall not lie or be proceeded

with where an enquiry is pending or a scheme is under

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preparation or consideration or a sanction scheme is under

implementation etc.; whereas a proceeding for recovery of

a debt may proceed. To put it another way, that a

proceeding for recovery shall lie against a sick company

but an order made in it could not be executed against any

of the properties of the industrial company, the effect

being that the proceedings may continue without any

consequence. Thus there cannot be any execution or

distraint against the properties of the company but

creditors may continue to apply for recovery before the

DRT. We do not think that such an anomalous purpose can

be attributed to Parliament in the present legislative

scheme. Though there is no doubt that Parliament may

expressly bring about such a situation if it considers it

desirable. Even otherwise, it appears that the legislative

purpose for reconstruction of companies could be thwarted

if creditors are allowed to encumber the properties of the

company with decrees of the DRT while the BIFR is

engaged in reviving the company, if necessary, by leasing

or selling the properties of the company for which there is

an express power.

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29. Plainly, the purpose of laying down that no

proceedings for execution and distraint or the like or a suit

for recovery shall not lie, is to protect the properties of the

sick industrial company and the company itself from being

proceeded against by its creditors who may wish to seek

the winding up of the company or levy execution or

distress against its properties. It protects the company

from all such proceedings. It also protects the company

from suits for recovery of money or for the enforcement of

any security or of any guarantee in respect of any loans, or

advances granted to the industrial company. But as is

apparent, the immunity is not absolute. Such proceeding

which a creditor may wish to institute, may be instituted or

continued with the consent of the Board or the Appellate

Authority. In the Section as originally enacted, the words

“and no suit for the recovery of money or for

the enforcement of any security ……………” were not there.

These words appear to have been inserted to expressly

provide, rather clarify that no suits for the recovery of

money etc. would lie or be proceeded with against such a

company.

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30. At this juncture, it would apposite to notice the

judgment of this Court in Kailash Nath Agarwal and Ors.

Vs. Pradeshiya Industrial & Investment Corporation of U.P.

Ltd. & Anr.1, where this Court considered whether Section

22 afforded protection to guarantors of the sick company

or only to the sick company. It was contended that

Section 22 prohibits the filing of a suit for recovery of

money or for enforcement of any guarantee in respect of a

loan or advance granted to an industrial company. It was

claimed that if proceedings for recovery through a court of

law were prohibited under Section 22(1), there was no

reason that protection should be refused when action was

sought to be taken without recourse to Court. The Court

held that the words “proceedings” and “suit” had to be

construed differently as carrying different meanings,

since, they had been used to denote different things. The

Court concluded that Section 22(1) only prohibits recovery

against the industrial company and there is no protection

offered to guarantors against the recovery proceedings.

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(2003) 4 SCC 305

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31. On the strength of this decision in Kailash Nath

Agarwal (supra) it was contended that the application for

recovery against the Company filed under the RDDB Act in

the execution of which the appellant had purchased the

property of the Company was neither a “proceeding” nor a

“suit” within the meaning of Section 22. Therefore, the

proceedings in the application for recovery remained

ineffective by Section 22. We find, however, that the

judgment in Kailash Nath Agarwal does not come to the

aid of the appellant. That judgment did not consider the

question that has arisen in this case. It dealt with the

question regarding the scope of protection afforded to

guarantors under Section 22(1) of the SICA, and held that

there was no protection afforded to guarantors as distinct

from the sick company under Section 22(1), since the

expression “suit” was used only in relation to sick industrial

companies and not to guarantors. Similarly, the

expression “proceeding” in relation to distress and

execution, was used to denote something other than a

“suit”. No such question arises in this case.

32. As observed earlier, sub-section (1) of Section 22

may be divided into two parts. In one part, it provides

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that “no proceedings” be instituted for the winding up of

the industrial company or for execution, distress or the like

against any of the properties of such industrial company,

and in the second part it provides that “no suit” for the

recovery of money or for the enforcement of any security

against the industrial company or of any guarantee in

respect of any loans or advances granted to the industrial

company, “shall lie or be proceeded with further, except

with the consent of the Board or, as the case may be, the

Appellate Authority.”

33. Undoubtedly, the present proceedings viz.

“application for recovery” cannot specifically be described

as proceedings for execution, distress or the like against

any of the properties, but it is certainly a proceeding which

results in and in fact had resulted in the execution and

distress against the property of the Company and is

therefore liable to be construed as a proceeding for the

execution, distress or the like against any of the properties

of the industrial company. We are of the view that such a

construction would be within the intendment of Parliament

wherever the proceedings for recovery of a debt which has

been secured by a mortgage or pledge of the property of

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the borrower are instituted. Surely, there is no purpose in

construing that Parliament intended that such an

application for recovery by summary procedure should lie

or be proceeded with, but only its execution be interdicted

or inhibited especially. In this context, it may be

remembered that the proceedings by way of an application

for recovery according to a summary procedure as

provided under the RDDB Act are not referred to in Section

22 simply because the RDDB Act had not then been

enacted.

SCHEME AND PURPOSE OF THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (RDDB ACT)

34. In 1993, Parliament passed the Recovery of Debts

due to Banks and Financial Institutions Act, 1993, i.e. the

RDDB Act. The Statement of Objects and Reasons recited

that more than fifteen lakhs of cases filed by the public

sector banks and about 304 cases filed by the financial

institutions involving recovery of debts of more than

Rs. 5622 crores in dues of Public Sector Banks and about

Rs. 391 crores of dues of the financial institutions were

pending. The locking of such huge amounts of public

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money prevented proper utilisation and recycling of the

funds for the development of the country. The RDDB Act

was thus enacted to prevent such stagnation of huge

amounts of public money due to the existing procedure for

recovery of debts. The urgent need to work out a suitable

mechanism through which the debts of the banks and

financial institutions could be realised without delay was in

the form of Special Tribunals, which would follow summary

procedure. These Tribunals eventually came to be known

as Debt Recovery Tribunals.

35. The ‘debt’ contemplated by the RDDB Act refers to

the liability claimed as due, by a bank or a financial

institution from any person, whether secured or unsecured

or whether payable under a decree or order of any civil

court or any arbitration award or under a mortgage and

legally recoverable, vide Section 2 (g). Applications for

recovery were required to be made to a Tribunal

established under Section 3. Appeals were to lie before the

Appellate Tribunal under Section 20. Upon the adjudication

of the application/appeal by the Tribunal, the certificate of

recovery is made executable by Chapter V under

Section 25. The Recovery Officer on receipt of the copy of

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certificate is required to proceed to recover the amount of

debt specified in the certificate by attachment and sale of

the movable or immovable property of the defendant etc.,

vide Section 25. Section 18 bars the jurisdiction of any

court or any authority except the Supreme Court and a

High Court, in relation to an application for recovery of

debts due to banks and financial institutions. Section 34,

with which we are concerned, confers an overriding effect

on the RDDB Act in the following terms:

“34. Act to have overriding effect.--(1)

Save as provided under Sub-section (2), the

provisions of this Act shall have effect

notwithstanding anything inconsistent

therewith contained in any other law for the

time being in force or in any instrument having

effect by virtue of any law other than this Act.

(2) The provisions of this Act or the rules

made thereunder shall be in addition to, and

not in derogation of, the Industrial Finance

Corporation Act, 1948, the State Financial

Corporations Act, 1951, the Unit Trust of India

Act, 1963, the Industrial Reconstruction Bank

of India Act, 1984 and the Sick Industrial

Companies (Special Provisions) Act, 1985 and

the Small Industries Bank of India Act, 1989.”

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36. This special law, which deals with the recovery of

debts due to banks and financial institutions, makes the

procedure for recovery of such debts exclusive and even

unique. The non-obstante clause in sub-section (1)

confers an overriding effect on the provisions of the RDDB

Act notwithstanding anything inconsistent therewith

contained in any other law for the time being in force.

Sub-section (2), however, makes the RDDB Act additional

to and not in derogation or annulment of the five Acts

mentioned therein i.e. Industrial Finance Corporation Act,

1948; the State Financial Corporations Act, 1951; the Unit

Trust of India Act, 1963; the Industrial Reconstruction

Bank of India Act, 1984 and the Sick Industrial Companies

(Special Provisions) Act, 1985.

37. Sub-section (2) was added to SICA w.e.f.

17.01.2000 by Act No. 1 of 2000. There is no doubt that

when an Act provides, as here, that its provisions shall be

in addition to and not in derogation of another law or laws,

it means that the Legislature intends that such an

enactment shall co-exist along with the other Acts. It is

clearly not the intention of the Legislature, in such a case,

to annul or detract from the provisions of other laws. The

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term “in derogation of” means “in abrogation or repeal of.”

The Black’s Law Dictionary sets forth the following

meaning for “derogation”:

“The partial repeal or abrogation of a law by a

later act that limits its scope or impairs its

utility and force.”

It is clear that sub-section (1) contains a non-obstante

clause, which gives the overriding effect to the RDDB Act.

Sub-section (2) acts in the nature of an exception to such

an overriding effect. It states that this overriding effect is

in relation to certain laws and that the RDDB Act shall be

in addition to and not in abrogation of, such laws. The

SICA is undoubtedly one such law.

38. The effect of sub-section (2) must necessarily be to

preserve the powers of the authorities under the SICA and

save the proceedings from being overridden by the later

Act i.e. the RDDB Act.

39. We, thus, find a harmonious scheme in relation to

the proceedings for reconstruction of the company under

the SICA, which includes the reconstruction of debts and

even the sale or lease of the sick company’s properties for

the purpose, which may or may not be a part of the

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security executed by the sick company in favour of a bank

or a financial institution on the one hand, and the

provisions of the RDDB Act, which deal with recovery of

debts due to banks or financial institutions, if necessary by

enforcing the security charged with the bank or financial

institution, on the other.

40. There is no doubt that both are special laws. SICA is

a special law, which deals with the reconstruction of sick

companies and matters incidental thereto, though it is

general as regards other matters such as recovery of

debts. The RDDB Act is also a special law, which deals

with the recovery of money due to banks or financial

institutions, through a special procedure, though it may be

general as regards other matters such as the

reconstruction of sick companies which it does not even

specifically deal with. Thus the purpose of the two laws is

different.

41. Parliament must be deemed to have had knowledge

of the earlier law i.e. SICA, enacted in 1985, while

enacting the RDDB Act, 1993. It is with a view to prevent

a clash of procedure, and the possibility of contradictory

orders in regard to the same entity and its properties, and

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in particular, to preserve the steps already taken for

reconstruction of a sick company in relation to the

properties of such sick company, which may be charged as

security with the banks or financial institutions, that

Parliament has specifically enacted sub-section (2). The

SICA had been enacted in respect of specified and limited

companies i.e. those which owned industrial undertakings

specified in the schedule to the IDR Act, as mentioned

earlier, whereas the RDDB Act deals with all persons, who

may have taken a loan from a bank or a financial

institution in cash or otherwise, whether secured or

unsecured etc.

42. Indeed, the question as to which Act shall prevail

must be considered with respect to the purpose of the two

enactments; which of the two Acts is the general or

special; which is later. It must also be considered whether

they can be harmoniously construed.

43. The conflict that is said to arise is between Section

22 of the SICA which purports to make untenable

“proceedings” for recovery of the debt against the sick

company and “suits” for recovery on the one hand and on

the other hand Section 34 of the RDDB Act contains an

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Page 29

overriding effect to its own provision, obviously including

those for recovery of debts. Some of the decisions of this

Court dealing with this aspect may be noticed in Ram

Narain Vs. Simla Banking & Industrial Co. Ltd.2. Two

statutes, both containing non-obstante clauses providing

that the particular provisions of the Act shall have effect

(notwithstanding anything inconsistent contained therein in

any other law for the time being in force) fell for

consideration. The two Acts were the Banking Company

Act 1949 and the Displaced Persons (Debt Adjustment)

Act, 1951. This Court gave primacy to the Banking

Companies Act. While doing so, this Court observed:-

“7. ….. It is therefore, desirable to determine

the overriding effect of one or the other of the

relevant provisions in these two Acts, in a

given case, on much broader considerations of

the purpose and policy underlying the two Acts

and the clear intendment conveyed by the

language of the relevant provisions therein.”

44. In a subsequent case, this Court held that the right

to possession enacted by the Delhi Rent Control Act, 1958

2

AIR 1956 SC 614 : 1956 SCR 603

29

Page 30

was not controlled by the Slum Clearance Act and the right

could be enforced in the manner provided in Section 25-B

without obtaining prior permission of the competent

authority under the Slum Clearance Act. The conflict arose

since the Slum Clearance Act contained a non-obstante

clause, to the effect that proceedings for eviction of

tenants could not be taken without prior permission of the

competent authority. The Delhi Rent Control Act conferred

a right under Section 14-A to recover immediate

possession in case the landlord had to vacate residential

premises allotted to him by the Central Government. This

right was conferred with a non-obstante clause. This Court

held that for resolving such conflicts, one test which may

be adopted is that the later enactment must prevail over

the earlier one. Having observed that the relevant

provisions of the Delhi Rent Control Act had been enacted

from 01.12.1975 alongwith a non-obstante clause with the

knowledge that the overriding provision of the Slum

Clearance Act was already in existence, the later

enactment must prevail over the former.

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Page 31

45. In LIC Vs. D.J. Bahadur3 this Court considered the

question as to which of the two laws i.e. the Industrial

Disputes Act, 1947 (the ID Act) and the Life Insurance

Corporation Act, 1956 (the LIC Act), was a special law.

Having regard to the doctrine of generalia specialibus non

derogant (general provisions will not abrogate special

provisions), it was submitted that an employee of the LIC

cannot invoke the provisions of the ID Act in his complaint,

and the matter would have to be decided in accordance

with the LIC Act. The Court observed that the LIC Act was

“special” as regards nationalization of the life insurance

business. But however, the disputes between employer

and employee had to be dealt with under the ID Act which

was a special law for resolving such disputes and if a

dispute arose between employer and employee in the Life

Insurance Corporation, the LIC Act must be treated as

“general law” and the ID Act should be treated as “special

law.” The Court thus observed:-

“52. In determining whether a statute is a

special or a general one, the focus must be on

the principal subject-matter plus the particular

3

(1981) 1 SCC 315

31

Page 32

perspective. For certain purposes, an Act may

be general and for certain other purposes it

may be special and we cannot blur distinctions

when dealing with finer points of law. In law,

we have a cosmos of relatively no absolutes -

so too in life.”

46. In Maharashtra Tubes Ltd. Vs. State Industrial &

Investment Corpn. Of Maharashtra Ltd. 4, the conflict arose

between two special statues i.e. the State Financial

Corporations Act, 1951 and the Sick Industrial Companies

(Special Provisions) Act, 1985 (SICA). This Court came to

the conclusion that the 1951 Act deals with the pre-

sickness situation, whereas the 1985 Act deals with the

post-sickness situation, and therefore, it was not possible

to agree that the 1951 Act is a special statute vis-à-vis the

1985 Act which is a general statute. The Court observed:-

“Both are special statues dealing with different

situations notwithstanding a slight overlap

here and there, for example, both of them

provide for grant of financial assistance though

in different situations. We must, therefore,

hold that in cases of sick industrial

4

(1993) 2 SCC 144

32

Page 33

undertakings the provisions contained in the

1985 Act would ordinarily prevail and govern.”

47. In a subsequent decision in Allahabad Bank Vs.

Canara Bank5, this Court held that with reference to the

Companies Act, the RDDB Act should be considered as a

“special law” though both laws could be treated as “special

laws” in respect of recovery of dues by banks and financial

institutions. In a later case the question arose in the

context of Special Court (Trial of offences Relating to

Transactions in Securities) Act, 1992 and SICA. It was

contended that in view of the special provisions contained

in SICA no proceedings could have been initiated under the

Special Court Act. The Court observed that though Section

32 of the SICA contained a non-obstante clause, there was

a similar non-obstante clause in Section 13 of the Special

Court Act. The Court observed:-

“9… This Court has laid down in no uncertain

terms that in such an event it is the later Act

which must prevail.”

5

(2000) 4 SCC 406

33

Page 34

48. This Court approved the observations of the Special

Court to the effect that if the legislature confers a non-

obstante clause on a later enactment, it means that the

legislature intends that the later enactment should prevail.

Further, it is a settled rule of interpretation that if one

construction leads to a conflict, whereas on another

construction two Acts can be harmoniously construed, then

the latter must be adopted.

49. In view of the observations of this Court in the

decisions referred to and relied on by the learned counsel

for the parties we find that, the purpose of the two

enactments is entirely different. As observed earlier, the

purpose of one is to provide ameliorative measures for

reconstruction of sick companies, and the purpose of the

other is to provide for speedy recovery of debts of banks

and financial institutions. Both the Acts are “special” in

this sense. However, with reference to the specific

purpose of reconstruction of sick companies, the SICA

must be held to be a special law, though it may be

considered to be a general law in relation to the recovery

of debts. Whereas, the RDDB Act may be considered to be

a special law in relation to the recovery of debts and the

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Page 35

SICA may be considered to be a general law in this regard.

For this purpose we rely on the decision in LIC Vs. Vijay

Bahadur (supra). Normally the latter of the two would

prevail on the principle that the Legislature was aware that

it had enacted the earlier Act and yet chose to enact the

subsequent Act with a non-obstante clause. In this case,

however, the express intendment of Parliament in the non-

obstante clause of the RDDB Act does not permit us to

take that view. Though the RDDB Act is the later

enactment, sub-section (2) of Section 34 specifically

provides that the provisions of the Act or the rules

thereunder shall be in addition to, and not in derogation of,

the other laws mentioned therein including SICA.

50. The term “not in derogation” clearly expresses the

intention of Parliament not to detract from or abrogate the

provisions of SICA in any way. This, in effect must mean

that Parliament intended the proceedings under SICA for

reconstruction of a sick company to go on and for that

purpose further intended that all other proceedings against

the company and its properties should be stayed pending

the process of reconstruction. While the term

“proceedings” under Section 22 did not originally include

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Page 36

the RDDB Act, which was not there in existence. Section

22 covers proceedings under the RDDB Act.

51. The purpose of the two Acts is entirely different and

where actions under the two laws may seem to be in

conflict, Parliament has wisely preserved the proceedings

under the SICA, by specifically providing for sub-section

(2), which lays down that the later Act RDDB shall be in

addition to and not in derogation of the SICA.

52. We might add that this conclusion has been guided

by what is considered to be one of the most crucial

principles of interpretation viz. giving effect to the

intention of the Legislature. The difficulty arose in this

case mainly due to the absence of specific words denoting

the intention of Parliament to cover applications for

recovery of debts under the RDDB Act while enacting

Section 22 of the SICA. As observed earlier, the obvious

reason for this absence is the fact that the SICA was

enacted earlier. It is the duty of this Court to consider

SICA, after the enactment of the RDDB Act to ascertain the

true intent and purpose of providing that no proceedings

for execution or distraints or suits shall lie or be proceeded

with. Undoubtedly, in the narrower sense an application

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Page 37

for recovery of debt can be giving a restricted meaning i.e.

a proceeding which commences on filing and terminates at

the judgment. However, there is no need to give such a

restricted meaning, since the true purpose of an

application for recovery is to proceed to the logical end of

execution and recovery itself, that is by way of execution

and distraint. We thus have no hesitation in coming to the

conclusion that Section 22 clearly covers and interdicts

such an application for recovery made under the provisions

of the RDB Act. We might remind ourselves of the oft-

quoted statement of the principles of contextual

construction laid down by this Court in Reserve Bank of

India Versus Peerless General Finance and Investment Co.

Ltd. & Ors.6, where this Court has observed:-

“33. Interpretation must depend on the

text and the context. They are the bases of

interpretation. One may well say if the text is the

texture, context is what gives the colour. Neither

can be ignored. Both are important. That

interpretation is best which makes the textual

interpretation match the contextual. A statute is

best interpreted when we know why it was

6

(1987)1 SCC 424

37

Page 38

enacted. With this knowledge, the statute must

be read, first as a whole and then section by

section, clause by clause, phrase by phrase and

word by word. If a statute is looked at, in the

context of its enactment, with the glasses of the

statute-maker, provided by such context, its

scheme, the sections, clauses, phrases and

words may take colour and appear different than

when the statute is looked at without the glasses

provided by the context. With these glasses we

must look at the Act as a whole and discover

what each section, each clause, each phrase and

each word is meant and designed to say as to fit

into the scheme of the entire Act. No part of a

statute and no word of a statute can be

construed in isolation. Statutes have to be

construed so that every word has a place and

everything is in its place.”

53. Moreover, we have found nothing contrary in the

intention of the SICA to exclude a recovery application from

the purview of Section 22, indeed there could be no reason

for such exclusion since the purpose of the provision is to

protect the properties of a sick company, so that they may

be dealt with in the best possible way for the purpose of its

revival by the BIFR. In State of Punjab Vs. The Okara

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Grain Buyers Syndicate Ltd.7, the Court articulated the

importance of preserving the beneficent purpose of the

statute and observed:-

“14. …….. We shall therefore proceed to

examine the provisions of the Act on the footing

that the test for determining whether the

Government is bound by a statute is whether it is

expressly named in the provision which it is

contended binds it, or whether it “is manifest that

from the terms of the statute, that it was the

intention of the legislature that it shall be bound”,

and that the intention to bind would be clearly made

out if the beneficent purpose of the statute would

be wholly frustrated unless the Government were

bound.”

54. Having answered the reference, we hold that the

provisions of SICA, in particular Section 22, shall prevail

over the provision for the recovery of debts in the RDDB

Act. In these circumstances, as already directed by the

two-Judge Bench of this Court, the Judgment and Order

dated 23.02.06 of the High Court of Delhi is set aside. As

far as the writ petitions are concerned, whether on the

ground that Section 22 of the SICA acts as a bar to the

7

AIR 1964 SC 669

39

Page 40

recovery proceedings under the RDDB Act or whether the

protection of SICA is not available to the appellant

company since the recovery proceedings under the RDDB

Act had been concluded, the writ petitions would have to

be dismissed and are accordingly dismissed. The present

appeal is allowed.

……………………….…..........…..CJI. [H.L.DATTU]

................................………J. [S.A. BOBDE]

...............................………J. [ABHAY MANOHAR SAPRE]

NEW DELHI, OCTOBER 27, 2014

40

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